Not as Hot as the Spring

By Steven ThomasREPORTSONHOUSING.COM

The Orange County housing market is strong during
the summer but not as sizzling as it was in the spring.

It’s summer!!! Grab the
sunscreen, beach towel, shovel,
and pail. All of the summer
distractions are here. The
distractions started with the
graduating class of 2017. With
more sunshine and the kids out
of school, bring on the family
vacations, trips to the beach
to play in the surf and sand,
refreshing dips in the pool, picnics
at the park, a day trip to the local
mountains—not to mention the
San Diego Zoo, Legoland, Knott’s
Berry Farm, Magic Mountain,
Raging Waters, the Discovery
Science Center, Disneyland, and
California Adventure. For some,
buying a home takes a back seat
to family fun. Many will still
purchase, but no longer at warp
speed, as they did during the
Spring Market.

While the Summer Market may
be the second busiest time of the
year for real estate, buyers, sellers,
and real estate professionals feel
a palpable shift. The active listing
inventory slowly and methodically
grows from now through mid-
August (see Figure 1). At the same
time, demand softens slightly
from the peak of 2017, which
occurred in late April.

Many mistakenly believe that
right now is the absolute best
time to come on the market. But
that is simply not true. The best
conditions actually occurred at
the beginning of April, when the
expected market time hit a low.
Since then, the expected market
time has been slowly rising and
will continue to rise from now
through the 2017 peak in active
inventory, which typically occurs
around mid-August (see Figure 2).

This shift occurs because
summer is full of distractions.
From the beach, to the pool, to
vacations, buyers’ attention is
diverted a bit. Not to mention,
the number one distraction:
everybody’s kids are on summer
break, too. It is just not as easy
to see homes when the kids are
not confined to their school
classrooms.

Even though it will continue
to be a seller’s market, overall
housing moved from a hot seller’s
market to a tepid seller’s market.
The stark difference in this
market can be isolated to a bit
less activity with not as many
offers generated. This shift is
much more dramatic in the higher
price ranges, from $750,000 and
up.

It is not like the market suddenly
transitioned into a buyer’s market.
It is more about supply and
demand and carefully pricing a
home. The supply of homes on
the market has been on the rise
throughout the Spring Market. It
increased by nearly 1,300 homes
from the end of February to the
start of the Summer Market, the
first week of June, a 29 percent
rise.

The inventory will continue to
grow until it peaks around mid-
August. More and more homes
will come on the market at a pace
similar to what we saw during
the spring, yet many unsuccessful
homeowners will accumulate on
the active listing inventory.

The inventory swells because of
this accumulation of unsuccessful
sellers, which occurs in every
price range, not just at the luxury
end. In fact, during the Summer
Market of 2016, homes between
$500,000 and $750,000 had the
largest increase compared with
any other price range, growing by
18 percent. The second largest, a
13 percent increase, occurred for
homes priced between $750,000
and $1 million.

It may be a seller’s market, but
sellers really need to approach
pricing with caution. Sellers who
aggressively stretch their asking
price risk not being successful
and missing both the Spring and
Summer Markets. Arbitrarily
picking a desired sales price while
ignoring the closed and pending
sales data is a waste of valuable
market time and a recipe for
disaster.

For example, a home that sold
in December 2016 at $800,000 is
not worth $900,000 today, over 12
percent more. The market has been
appreciating at about 5 percent
annually. This means that it takes
365 days for a home to appreciate 5
percent, not three months, not six
months, not nine months. It takes a
year. On average in Orange County,
that $800,000 home would be
worth about $820,000 six months
later. That is 2.5 percent more.

Of course, this simple example
does not work for every property
in every neighborhood. The
appreciation rate varies from
area to area, neighborhood to
neighborhood, and sometimes
from street to street. A professional
REALTOR® can help dissect the
recent closed and pending sales
data to establish the best price for
success.

Sellers absolutely should not
utilize Zillow to price a home.
Zillow admits it themselves,
stating, “The Zestimate® is a
starting point in determining
a home’s value and is not an
official appraisal.” It is just an
approximation, and using it
leads to inaccurate pricing.
Nothing beats carefully looking
at the comparable sales data and
comparing the property size,
bedrooms, bathrooms, location,
amenities, upgrades, condition, lot
size, and every other nuance that
goes into the value of a home.

The bottom line is this: the
market is slowly cooling right now,
and the window of opportunity
to find success before the kids go
back to school at the end of August
is beginning to close. Sellers find
success through accurate pricing.
Price out of bounds and risk losing
valuable market time during the
best time of the year to sell, the Spring and Summer Markets.

Steven Thomas has a degree in quantitative economics and decision sciences from the University of California, San Diego, and more than twenty years of experience in real estate. His bimonthly Orange County Housing Report is available by subscription and provides housing market analysis that is easy to understand and useful in setting the expectations of both buyers and sellers. His website is
www.ReportsOnHousing.com.